Should You Quit Your Job Before Starting a Business?

It’s tempting to quit your job when you decide to start your own business. But quitting right away may not be wise. Here are five things to consider before turning in your resignation.

You’ve decided it’s time to start your own business. Good for you! But should you quit your job first and then start the business or run your business on the side first?

You need to consider a variety of things before you start any business, one of which is how you’ll make ends meet while building your clientele. It doesn’t matter what kind of business you’re starting; there’s always an initial startup phase where you’ll be scrounging for every penny as you develop your track record. This aspect of running a business is not unique among service or product businesses.

Things to Consider Before You Quit Your Job

Unless you’re independently wealthy, there’s a good chance that you’re working because you have to. In that case, it would be foolhardy to quit your job until you’re sure you have another source of income to replace your weekly paycheck and any job-related benefits, such as healthcare. However, there may be certain circumstances under which you should quit your job before kicking off your business.

Consider these five factors before making that decision:

Do you have savings to fund the business and live on?

If you’ve saved up enough money to live on for several months, pay for health insurance, and fund the business, then you might want to consider leaving your employer.

But how much is enough savings? Some recommendations say you should have at least enough to manage for six months. But businesses often take longer than expected and cost more than planned to get going. So, a less-risky approach is to have 9 to 12 months of operating expenses and living expenses saved up.

But, still, take your entire living situation into consideration and ask yourself how much risk you’re comfortable with. If you’re counting on income and health insurance from your spouse’s job to carry you through, consider how you’d manage if they lost their job before your new business becomes profitable.

RELATED: Business Startup Cost Calculator

Do you have ready-to-go clients waiting for you?

If you already have ready-to-pay clients wanting to do business with you, then quitting your job might be an option. But keep in mind that those business acquaintances and friends who promise future help might not actually follow through on their promises to give you business or make referrals.

Ideally, before you resign from the day job, the total billing from regular clients should exceed your current income by enough money to at least cover your costs for lost benefits, extra self-employment or payroll taxes, and the costs for operating your business.

Do you have investors?

Anyone who makes a significant investment in your business is likely to expect you to give the business your full attention. About the only exception might be close family members. If you have outside investors (people who are not close friends or family members) their idea of “full-time” could be 80 to 90 or more hours a week.

Is your current job a part-time job?

If you’re working part-time and starting a business on the side, ask yourself how much time you really need to run the business. If you can get it off the ground working part-time while you continue to work your part-time job, then you may want to wait to quit your job when your income from the business is twice what you’re making on your job.

Will keeping your job create a legal or ethical dilemma?

If starting your business will put you in competition with your employer, or interfere with your ability and availability to work for your employer, starting a business while you keep your current job may be inadvisable, or impossible. In this case, moonlighting could get you fired and/or sued.

Weigh the benefits of your job against the business opportunity

Ultimately, you must decide whether it’s more important to spend your time building the business or being a good employee. In most cases, you should wait to quit your job until you’re making enough money from the business to sustain your lifestyle.

In some rare situations, you could be fortunate enough to quit your job and work on the business full-time. Ask your family and friends if they can help. You’ll often find that the answer to this question is in your own backyard.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.